Canadian investors turn bullish on India

They have been investing in India through private equity funds and are keen to increase their exposure. Fairfax and Brookfield have also taken big bets

Canadians are buying into the Indian story. Canadian investors, led by bulge-bracket pension funds, have emerged as the most active investors in the private equity (PE) space here in the past couple of years.

Canadian Pension Plan Investment Board (CPPIB) and Caisse de depôt et placement du Quebec (CDPQ) have forged alliances with local partners to create platforms and are also investing directly. Both have opened offices in India and are actively pursuing deals.

They have been investing as limited partners or investors in PE funds - having invested in all big local PE funds - and now want to increase their exposure. CPPIB and CDPQ's investments here stand at $2 billion and $2.3 billion, respectively, according to reports.

CPPIB has committed $300 million in two funds of Multiples Alternate Asset Management and $75 million in a fund of India Value Fund Advisors. "I think there's a huge change in perception," Finance Minister Arun Jaitley said last week, after meeting the heads of leading pension funds and banks in Toronto. "In the past two years, $12 billion has come from the pension funds and other investors into India."

According to Nishith Desai of law firm Nishith Desai Associates, Canada has some of the largest pension funds in the world and these are looking to fund long-term projects at a good yield. Its largest pension fund, CPPIB, alone manages nearly $220 billion. "The current yields in India are higher than any of its competitive economies," says Desai.

Bala Deshpande, senior managing director at NEA India, says the rate of return their capital can fetch at home is negative or low. "The opportunity for venture capital is low in Canada. Given the risk return alternate assets offers in India, it makes sense to allocate a part of the portfolio here." According to her, they need to generate 12 per cent return to beat inflation.

PE funds club Canadian, Japanese and Australian funds in one basket. Funds from China, which have done well and are flush with cash, want to diversify and are looking to invest in Africa and India. American pension funds are spoilt for choice as US venture capital returns are the best, say experts.

"What makes them different from other pension funds is that they have a lot more money. They are far more aggressive and are already here. The confidence level is high," says Vikram Hosangady, head of PE at consultancy firm KPMG.

In early 2014, CPPIB and the Ajay Piramal-promoted Piramal Enterprises formed an alliance to set up a $500-million real estate finance company in India to offer rupee loans to realtors. In end-2014, CPPIB had agreed to invest Rs 2,000 crore in L&T Infrastructure Development Projects.

Last week, CDPQ formed an alliance with Edelweiss Financial Services to invest around Rs 5,000 crore (nearly $750 million) in stressed assets and specialised corporate credit in India, over the next four years.

"They are investing across different asset classes (growth, buyout, infrastructure) and have increased the quantum of investment," says Deshpande. "They will do large (but fewer) deals and generally back leaders in an industry, given their very high standards of rigour on who they will partner," says Hosangady.

Pension funds are not the only Canadian investors bullish on India. Prem Watsa-promoted Fairfax India Holdings was one of the most aggressive PE investors last year. It has invested in Bengaluru International Airport, Sanmar Engineering, India Infoline, and National Collateral Management Services.

Last week, Brookfield Asset Management agreed to buy four million sq ft of office and retail space in Mumbai's Powai central business district for $1 billion from Hiranandani Group. In 2014, Brookfield had bought four SEZs owned by Unitech Corporate Parks for $563 million.